Tuesday, 4 April 2017

Last week the Brexit process
formally got underway, as the UK formally sent the ‘Article 50’ withdrawal letter
to the EU on March 29, and the EU in turn drew up a draft of its Brexit negotiating
guidelines.

The following is a detailed
annotation of the text of the EU’s draft guidelines, which I compare throughout
to the UK position – which is most fully set out in Theresa May’s Chatham House
speech in January (discussed here).
The draft guidelines might be changed before final adoption (due for April 29),
but at present it seems unlikely there will be radical changes (if any), so my
analysis is based on the text as it now stands. I will update this blog post if
there are significant amendments.

I also make reference to the draft
position of the European Parliament (EP). This is less important than the
draft EU position, since the European Parliament is not (even partly)
the negotiator in the talks – no matter how much it might claim to be, or how
much some in the UK media believe that it is.
However, the EP position is still worth considering because the EP has a
veto over the final Article 50 deal, and this power could influence the actual
negotiators’ position. (There’s a full discussion of the EP’s role here).
My comments are both legal and political – although we should keep in mind that
most legal analysis about Article 50 TEU (which sets out the process of leaving
the EU) is purely speculative in the absence of any ECJ case law.

While the initial attention in
the UK has focussed on a misunderstanding of what the draft EU guidelines say
about Gibraltar, the most significant issue is actually that the EU and UK in
principle have many negotiating objectives in common. Most notably, the EU has
accepted the UK’s objective of aiming towards a comprehensive EU/UK free trade
agreement (FTA) without provisions on the free movement of persons or
contributions to the EU budget.

The devil will therefore be in
the considerable details. For example, the EU and UK still disagree on the
timing of Brexit talks, (possibly) the role of the ECJ, financial issues (the ‘divorce
bill’), the Gibraltar issue (although this will be an issue for bilateral talks
with Spain), whether the UK should comply with environmental and other standards
as part of a deal, and whether ‘sectoral’ deals are possible. Further points of
detailed disagreement will surely emerge as the talks get underway.

Is an EU/UK relationship based on
a free trade deal the right way forward? Frankly, in my view, it’s not the
first or even the second best option. But it is still a vastly better option
than reversion to trade with the EU on a ‘WTO-only’ basis, as some are
contemplating. This would lead to significant tariff and non-tariff barriers on
many goods and services traded, and therefore hurt both sides.

There’s a democratic dimension to
this too. Many of those voting ‘Leave’ were particularly concerned about EU
budget contributions and the free movement of people, and an UK/EU FTA would
resolve both concerns. But equally the ‘Leave’ side argued repeatedly that any
concerns about a drop in UK trade with the EU were misplaced, because the UK
and the EU would sign a free trade agreement without commitments relating to
the free movement of persons or EU budget contributions.

They also claimed that such an
agreement could be reached quickly and easily, on the UK’s terms. This was an
obvious falsehood, as the EU’s draft negotiating guidelines have confirmed. But rather than focus on this untruth, I
believe we should move forward. It’s up to the government to move on with the
negotiations, never forgetting that a reversion to a WTO-only trading relationship
with the UK’s largest trading partner would both make a nonsense of the
government’s aim of a free-trading ‘Global Britain’ and lack the slightest
shred of democratic legitimacy. Moreover, it would damage both sides, and in
particular put many people in the UK out of a job. These negotiations won’t be
easy, but they are necessary. The time for fantasies, flag-waving and faffing
about is over.

Annex I

On 29 March 2017, the European
Council has received the notification by the United Kingdom of its intention to
withdraw from the European Union and Euratom. This allows for the opening of
negotiations as foreseen by the Treaty.

Note that the guidelines refer throughout to ‘negotiations’. Some have
erroneously asserted that the EU will draft a text and present to the UK on a
‘take-it-or-leave-it’ basis. This is incorrect: Article 50(2) TEU refers
several times to ‘negotiations’, and the draft guidelines reflect this.

The guidelines do not refer to any possible withdrawal of the UK
notification, although the EP resolution (point L) assumes that a withdrawal of
the notification is possible with consent. There is also an argument that the
time period for withdrawal in Article 50 could be extended indefinitely. I will
return to this issue another time.

Some have speculated that the EP might insist that the UK hold a referendum
result on the outcome of the talks, as a condition for its consent to the deal.
This would almost certainly backfire spectacularly, and in any event the draft
EP resolution does not address this.

European integration has brought
peace and prosperity to Europe and allowed for an unprecedented level and scope
of cooperation on matters of common interest in a rapidly changing world.
Therefore, the Union's overall objective in these negotiations will be to
preserve its interests, those of its Member States, its citizens and its
businesses.

The United Kingdom's decision to
leave the Union creates significant uncertainties that have the potential to
cause disruption, in particular in the UK but also in other Member
States. Citizens who have built their lives on the basis of rights flowing
from the British membership of the EU face the prospect of losing those rights.
Businesses and other stakeholders will lose the predictability and certainty
that come with EU law. With this in mind, we must proceed according to a phased
approach giving priority to an orderly withdrawal.

The EU expressly asserts here its goal of an ‘orderly withdrawal’. Indeed
Article 50(2) creates an obligation to negotiate with the withdrawing Member
State (implicitly in good faith, as with any other negotiation under
international law). Legally the wording of Article 50 equally suggests it aims
to ensure an orderly withdrawal, and the ECJ is very likely to interpret it the
same way. This necessarily implies that the EU cannot simply walk away from
negotiations. However, in the event of a legal challenge it is unlikely (based
on its prior case law on the EU’s international relations, which emphasises
political discretion for the EU institutions) that the ECJ would rule that the
general obligation to negotiate requires the EU to adopt (or refrain from
adopting) specific negotiation objectives.

Politically this paragraph (and other similar references) confirms that
the EU is aiming to reach a deal with the UK. So it would be false for anyone
to assert that it is not.

In these negotiations the Union
will act as one. It will be constructive throughout and will strive to find an
agreement. This is in the best interest of both sides. The Union will work hard
to achieve that outcome, but it will prepare itself to be able to handle
the situation also if the negotiations were to fail.

The first sentence confirms that the EU will negotiate as a bloc, as
Article 50 provides for (‘the Union shall negotiate and conclude an agreement
with that State’). This does not preclude informal bilateral talks between the
UK and key Member States’ governments, which is common when the EU discusses
trade deals with non-EU states.

The overall tone here is diplomatic and asserts an intention to reach a
deal, although the final sentence also asserts that the EU will prepare itself
for a ‘no deal’ scenario as an alternative. This would likely entail getting
draft EU laws ready for approval and gearing up national customs
administrations et al for a UK departure presumably in one of two scenarios: a)
on the date set out pursuant to Article 50; b) if the UK purports to leave the
EU in breach of the terms of Article 50. In the latter scenario the EU Member
States might not wait for the end of the Article 50 period, but declare that
the UK has committed a material breach of the EU Treaties within the meaning of
Article 60 of the Vienna
Convention on the Law of Treaties, and suspend the UK from the Treaties.

The guidelines make no mention of amending the Treaties to remove
reference to the UK, but one would not expect them to, since logically that is
not an issue which the EU would negotiate with the UK. It is not yet clear whether the EU will
embark upon such a course; legally it might be argued that Article 50 is ‘self-executing’
in the sense that references to the UK automatically become legally irrelevant on
Brexit Day. One issue might be whether other changes to the Treaties might be
made at the same time; if so, this would become difficult to negotiate. Even a purely
technical Treaty amendment which only removes references to the UK would take
some time to ratify, so one would expect work to get underway soon, if it is
going to happen – although there could be a legal problem in that in principle
the UK ought to participate in the Treaty amendment process as long as it is a
member. One solution might be to draw up such a treaty after Brexit Day, and
backdate its application date.

Paras 30 and 32 of the draft EP resolution refer to possible changes to
EU law as a result of the UK’s departure as an issue for the EU-27, although they
make no specific reference to Treaty amendment.

These guidelines define the
framework for negotiations under Article 50 TEU and set out the overall
positions and principles that the Union will pursue throughout the negotiation.
The European Council will remain permanently seized of the matter, and will
update these guidelines in the course of the negotiations as necessary.

Article 50(2) states that the negotiation must take place ‘in light of’
these guidelines. It is unclear precisely what legal effect this has. For
instance, could an outvoted Member State challenge the Article 50 deal for
breaching the guidelines? As it happens, there is a pending ECJ case which
raises (among other things) the legal effect of European Council guidelines in
the asylum context, discussed here.

The predominant effect of the guidelines will of course be political; note
that the European Council is prepared to ‘update’ them (ie amend or elaborate
upon them further). They will necessarily be fleshed out in detail in a rather
longer treaty text, on the basis of drafts tabled and negotiated by each side.

I. Core principles

1. The European Council will
continue to base itself on the principles set out in the statement of Heads of
State or Government and of the Presidents of the European Council and the
European Commission on 29 June 2016. It reiterates its wish to have the United
Kingdom as a close partner in the future. It further reiterates that any
agreement with the United Kingdom will have to be based on a balance of rights
and obligations, and ensure a level-playing field. Preserving the integrity of
the Single Market excludes participation based on a sector-by-sector approach.
A non-member of the Union, that does not live up to the same obligations as a
member, cannot have the same rights and enjoy the same benefits as a member. In
this context, the European Council welcomes the recognition by the British
Government that the four freedoms of the Single Market are indivisible
and that there can be no "cherry picking".

The June 2016 statement can be found here.
The second sentence matches the UK
government’s objective of a future close partnership. Any ‘sectoral’ deals are
excluded; this contradicts the UK government position, which had the objective
of obtaining such deals. In any event sectoral deals would be potentially
vulnerable to challenge under WTO rules, which require any free trade agreement
to cover ‘substantially’ all trade in goods (Article XXIV GATT) or services
(Article V GATS). It would however be possible for mutual recognition
agreements to cover certain sectors of trade. There is no reference in the guidelines
to the UK government’s objective to achieve some form of special customs
agreement, except implicitly as regards Northern Ireland.

2. Negotiations under Article 50
TEU will be conducted as a single package. In accordance with the principle
that nothing is agreed until everything is agreed, individual items cannot
be settled separately. The Union will approach the negotiations with unified
positions, and will engage with the United Kingdom exclusively through the
channels set out in these guidelines and in the negotiating directives. So
as not to undercut the position of the Union, there will be no separate
negotiations between individual Member States and the United Kingdom on
matters pertaining to the withdrawal of the United Kingdom from the Union.

It’s not clear whether the ‘single package’ refers more narrowly to the
specific issues which the EU wants to negotiate first, or the talks on later
status of UK/EU relations. This is important because there is a strong case for
concluding a first treaty on withdrawal issues, including in particular the
status of UK and EU citizens who have moved between Member States, separately
from any subsequent treaties.

This paragraph reconfirms the ‘no separate negotiations’ point already
made in the guidelines. As noted above, this does not prevent some informal
bilateral discussions on specific issues. For instance, UK/Ireland discussions
on border issues could be significant, and the guidelines in effect require
separate talks between the UK and Spain regarding Gibraltar. They also refer to
bilateral UK/Cyprus issues.

Article 50 refers to the EU acting by qualified majority vote (without
the UK voting), so the common assumption that any Article 50 deal must be
agreed unanimously and ratified by all national parliaments is incorrect.
However, some aspects of the overall Brexit deal (ie on future relationship)
might entail unanimous voting and national ratification; and the EU might be
unwilling to proceed with the Article 50 deal against the opposition of one or
more Member States.

II. A phased approach to
negotiations

3. On the date of withdrawal, the
Treaties will cease to apply to the United Kingdom, to those of its overseas
countries and territories currently associated to the Union, and to territories
for whose external relations the United Kingdom is responsible. The main
purpose of the negotiations will be to ensure the United Kingdom's orderly
withdrawal so as to reduce uncertainty and, to the extent possible, minimise
disruption caused by this abrupt change.

This refers to the entities referred to in Article 353 TFEU, ie
Gibraltar, the Channel Islands, the Isle of Man, and some small remaining
semi-colonies. For a discussion of their status, see this House of Lords report.
The reference to minimising disruption is important, although qualified (‘to
the extent possible’).

To that effect, the first phase
of negotiations will aim to:

settle the disentanglement of the
United Kingdom from the Union and from all the rights and obligations the
United Kingdom derives from commitments undertaken as Member State;

provide as much clarity and legal
certainty as possible to citizens, businesses, stakeholders and international
partners on the immediate effects of the United Kingdom's withdrawal from the
Union.

The European Council will
monitor progress closely and determine when sufficient progress has been
achieved to allow negotiations to proceed to the next phase.

This asserts the EU’s determination to discuss withdrawal issues before
trade issues, whereas the UK has wanted to discuss them in tandem. However, the
EU guidelines do not require the withdrawal issues to be fully agreed before talks
on post-Brexit issues get underway. The ‘sufficient progress’ test is
deliberately flexible; it can be argued that agreement in principle on the main
issues will be sufficient, even if some details have to be worked out. Para 14 of the EP draft resolution largely matches
this, although the EP will not have any formal role in determining whether ‘substantial
progress’ (the slightly stricter test which the EP proposes) has been met.

4. While an agreement on a future
relationship between the Union and the United Kingdom as such can only be
concluded once the United Kingdom has become a third country, Article 50 TEU
requires to take account of the framework for its future relationship with the
Union in the arrangements for withdrawal. To this end, an overall understanding
on the framework for the future relationship could be identified during a
second phase of the negotiations under Article 50. The Union and its Member
States stand ready to engage in preliminary and preparatory
discussions to this end in the context of negotiations under Article 50
TEU, as soon as sufficient progress has been made in the first phase towards
reaching a satisfactory agreement on the arrangements for an orderly
withdrawal.

The EP draft resolution (point 15) also rules out conclusion of a ‘future
relationship’ treaty before Brexit, so it seems unlikely to happen.

This discussion of a ‘future relationship’ between the UK and the EU
(concerning trade and other issues) is separate from a possible ‘transitional
arrangement’ referred to in the next paragraph (‘may also’). So it is unclear
whether a transitional deal could also only be concluded after the UK leaves.

In any event, it is arguable that a longer-term deal could be concluded
(or at least signed and applied provisionally) on the date of withdrawal, or
failing that, it could be backdated to that date. Such an approach would be
consistent with the EU’s objectives of an orderly withdrawal and minimising
disruption. However, the references to ‘preliminary and preparatory’ and ‘overall
understanding’ seem to rule that out.

In any event, it would be hard in practical terms to negotiate all the
details of the long-term framework within the time available, even though this
is Theresa May’s objective. This is particularly true given that some of the
available time will be taken up negotiating withdrawal issues before moving on
to the ‘future relationship’ talks.

5. To the extent necessary and
legally possible, the negotiations may also seek to determine transitional
arrangements which are in the interest of the Union and, as appropriate, to
provide for bridges towards the foreseeable framework for the future
relationship. Any such transitional arrangements must be clearly defined,
limited in time, and subject to effective enforcement mechanisms. Should a
time-limited prolongation of Union acquis be considered, this would require
existing Union regulatory, budgetary, supervisory and enforcement instruments
and structures to apply.

It is certainly in the EU’s interest to maintain trade flows and other
relationships with the UK, and as noted above this would be consistent with the
EU’s objectives of an orderly withdrawal and minimising disruption. They would
obviously be ‘necessary’ to the end of avoiding a switch to a WTO-only
framework for trade between the UK and the EU. Again as noted already, this
paragraph is unclear about when a transitional deal might be concluded,
although as compared to the previous paragraph it does not explicitly state
that talks could not be completed or that an agreement could not be concluded
before Brexit Day. It is also vague about the relevant legal base: is it
Article 50 (qualified majority vote) or other Treaty provisions (more likely to
entail unanimity and national ratification)? The exact scope of Article 50 is
unclear legally; the wording here suggests some uncertainty about what is
‘legally possible’, which it may be necessary to ask the ECJ to clarify (see
Annex II).

The transitional deal would have to be limited in time, which could
reassure those who do not want the UK to remain in such an arrangement
indefinitely. It is not expressly clear that all aspects of EU
membership would be carried over. In particular, it is not clear that the only
transition which the EU would consider would be continuing in force the EU
acquis. The distinction is important because a) flexibility on this issue could
involve ending the free movement of people, or continuing it with an ‘emergency
brake’, from Brexit Day; and b) an ‘enforcement mechanism’ might fall short of
continuing EU ‘existing regulatory, budgetary, supervisory and enforcement’
measures. The latter phrase would logically entail keeping in force the ECJ’s
current jurisdiction, while a mere ‘enforcement mechanism’ could entail a more
limited role for the ECJ (no references from UK courts or direct impact on UK
law) or a different dispute mechanism system entirely, such as using the EFTA
Court which already exists and rules on certain EU law issues as regards
Norway, Iceland and Liechtenstein. However, the more different a transitional
system would be from current EU membership, the longer it would take to
negotiate, and the bigger the risk of running out of time.

The UK government’s position seems to contemplate some form of interim
transitional period, without calling it such. The Chatham House speech refers
instead to ‘phased implementation’, during which aspects of EU law will still
apply. But despite the difference in wording, fundamentally there are strong
similarities between the UK and EU positions here.

The EP draft resolution is similar (para 28). It sets a maximum time
limit of three years for the transitional deal, although otherwise it is as
vague as the European Council draft guidelines.

6. The core principles set out
above should apply equally to the negotiations on an orderly withdrawal, to any
preliminary and preparatory discussions on the framework for a future
relationship, and to any form of transitional arrangements.

7. The two year timeframe set out
in Article 50 TEU ends on 29 March 2019.

It should be noted that Article 50(3) provides that the withdrawal
agreement may set a different date (which could implicitly be later or earlier),
and that the UK and the remaining EU, voting unanimously, may postpone the
overall deadline.

III. Agreement on arrangements
for an orderly withdrawal

8. The right for every EU
citizen, and of his or her family members, to live, to work or to study in any
EU Member State is a fundamental aspect of the European Union. Along with other
rights provided under EU law, it has shaped the lives and choices of millions
of people. Agreeing reciprocal guarantees to settle the status and
situations at the date of withdrawal of EU and UK citizens, and their families,
affected by the United Kingdom's withdrawal from the Union will be a matter of
priority for the negotiations. Such guarantees must be enforceable and
non-discriminatory.

The EU, like the UK, places priority on an early deal on the rights of
each other’s citizens. While some had claimed that the EU could not or would
not address this issue in the Article 50 talks, it clearly intends to do so.
The reference to ‘non-discriminatory’ arrangements confirms that there will not
be bilateral talks on this issue, as some people had expected. While some have
claimed that the EU lacks legal power to regulate the position of non-EU
citizens, Articles 77-79 TFEU confer such powers and the EU has adopted a
number of laws in this area. In any event, it is strongly arguable that Article
50 confers power upon the EU to negotiate any issue which arose pursuant to the
withdrawing Member State’s membership of the European Union, and the status of
UK and EU citizens is one obvious example of such an issue.

The reference to an ‘enforceable’ guarantee does not necessarily entail
using the ECJ. There could be some other form of dispute settlement, or a commitment
to make the agreement binding in national law and to hold discussions about any
issues which arise might suffice.

It should be noted that the guidelines make no reference to the idea,
promoted by some in the EP, of an optional right for UK citizens to retain EU
citizenship. The EP draft resolution does refer to this issue, but states that
such arrangements should be reciprocal (para 27). It is hard to imagine the UK
government agreeing to such a deal.

9. Also, the United Kingdom
leaving the Union will impact EU businesses trading with and operating in the
United Kingdom and UK businesses trading with and operating in the Union.
Similarly, it may affect those who have entered into contracts and business
arrangements or take part in EU-funded programmes based on the assumption of
continued British EU membership. Negotiations should seek to prevent a legal
vacuum once the Treaties cease to apply to the United Kingdom and, to the
extent possible, address uncertainties.

This indicates a general intention to retain contracts and legal
arrangements in force, if they have been concluded before Brexit Day. This
could be relevant to research funding, regional funding or farm subsidies, for
instance. It could also be the basis for arguing that UK banks who already have
a licence to sell financial services to the EU market can retain it.

10. A single financial settlement
should ensure that the Union and the United Kingdom both respect the
obligations undertaken before the date of withdrawal. The settlement should
cover all legal and budgetary commitments as well as liabilities, including
contingent liabilities.

This is likely to be one of the most difficult issues to negotiate. The
draft guidelines do not put a specific figure on the ‘bill’, although press
reports note amounts such as €50 billion. There is no reason why the amount of
any bill should be paid upfront, as some of it relates to funding over the next
few years and to pensions payable over the longer term. For detailed
discussions of this issue see this House
of Lords report and this Brueghel
report.

11. The Union has consistently
supported the goal of peace and reconciliation enshrined in the Good Friday
Agreement, and continuing to support and protect the achievements, benefits and
commitments of the Peace Process will remain of paramount importance. In view
of the unique circumstances on the island of Ireland, flexible and
imaginative solutions will be required, including with the aim of avoiding a
hard border, while respecting the integrity of the Union legal order. In
this context, the Union should also recognise existing bilateral agreements and
arrangements between the United Kingdom and Ireland which are compatible with
EU law.

The EU and UK both make a priority of addressing the border issue
between Ireland and Northern Ireland. (It should be noted that there is no
specific reference to Scotland in the EU guidelines; the EP resolution merely
notes that Scotland voted to Remain). There are indications of great
willingness to compromise here (‘flexible and imaginative solutions’) and it
should be noted that Protocols to the Treaties require the EU to facilitate the
operation of the Common Travel Area between the UK and Ireland (the words
‘should also recognise’ these arrangements do not adequately take account of this
legal obligation). However, the Protocols do not lay down in detail what
happens in the event of UK withdrawal, which therefore has to be the subject of
negotiations. Equally, arguments about the history of the UK and Ireland are
irrelevant, as there has never been a previous situation when one of those
countries was in the EEC/EC/EU and the other was not.

12. The Union should agree with
the United Kingdom on arrangements as regards the Sovereign Base Areas of the
United Kingdom in Cyprus and recognise in that respect bilateral agreements and
arrangements between the Republic of Cyprus and the United Kingdom which are
compatible with EU law, in particular as regards the situation of those EU
citizens resident or working in the Sovereign Base Areas.

There is a specific Protocol to the 2003 Accession Treaty on the
position of the UK sovereign base in Cyprus, which will presumably have to be
amended in order to take account of any such agreement. Here, despite the
overall EU-wide approach to talks, there is recognition that there will be a
bilateral agreement between the UK and Cyprus alongside an EU-UK agreement.

13. Following the withdrawal, the
Union with 27 Member States will continue to have the rights and obligations of
the Union with 28 Member States in relation to international
agreements. The United Kingdom will no longer be covered by agreements
concluded by the Union or by Member States acting on its behalf or by both
acting jointly. The European Council expects the United Kingdom to honour its
share of international commitments contracted in the context of its EU
membership. In such instances, a constructive dialogue with the United Kingdom
on a possible common approach towards third country partners and international
organisations concerned should be engaged.

The EU position is that the UK ceases to be part of any treaty with
non-EU countries within the scope of EU law – whether concluded by the EU
alone, by the Member States alone (but affecting EU law) or by both together. This
is particularly relevant to trade agreements (see discussion by Markus Gehring here)
but affects other agreements as well (for example, environmental deals).

The UK will likely seek to secure replacement agreements with the
countries concerned. This is even encouraged by the EU, which seeks a
‘constructive dialogue’ on these issues. The reference to ‘international
organisations’ most obviously refers to the WTO.

In practical terms, the issue which particularly arises is ‘tariff rate
quotas’, ie allowing in a certain amount of products at a low tariff. Say the
EU allows 100,000 tons of olives imported from Morocco at a low tariff: the
obvious solution is to split that between the UK and the remaining EU based on
recent trade flows (ie how much of those olives were imported into the UK in
the last three years, as compared to the rest of the EU?).

Non-EU countries will obviously have to agree to this process, and the
UK might want to focus particularly on replicating those agreements with a
major impact on UK exports: for instance, the EU agreements on the protection
of the name ‘Scotch Whisky’.

14. While the future location of
the seats of EU agencies and facilities located in the United Kingdom is a
matter for the 27 Member States, arrangements should be found to
facilitate their transfer.

The intention is obviously to move these bodies as soon as possible
after Brexit Day, if not before. The UK will not be involved in decisions on
where they move to, but will be involved in the logistics of moving them.

15. Arrangements ensuring legal
certainty and equal treatment should be found for all court procedures pending
before the Court of Justice of the European Union upon the date of withdrawal
that involve the United Kingdom or natural or legal persons in the United
Kingdom. The Court of Justice of the European Union should remain
competent to adjudicate in these procedures. Similarly, arrangements should be
found for administrative procedures pending before the European Commission and
Union agencies upon the date of the withdrawal that involve the United Kingdom
or natural or legal persons in the United Kingdom. In addition, arrangements
should be foreseen for the possibility of administrative or court proceedings
to be initiated post-exit for facts that have occurred before the withdrawal
date.

The EU assumes that EU court cases pending on Brexit Day should remain
within the competence of the Court to decide. This is a classic transitional
issue and the EU suggestion makes sense, since the cases concern the pre-Brexit
legal position. (Compare to the planned Great
Repeal Bill, which will provide that pre-Brexit ECJ case law will still be
binding). It is slightly more ambiguous as regards pending administrative
procedures like competition law and state aid (‘arrangements should be found’).
The same applies to cases with EU law issues pending in the UK courts on Brexit
Day, or which are brought in the UK courts in summer 2019 relating to a 2018
tax bill, for instance.

This paragraph is too limited, as the transitional deal needs to take
explicit account of all legal proceedings pending on Brexit Day pursuant to EU
law, not just those which involve or may involve the EU institutions: for
instance a pending claim to recognise a German court judgment in the UK, or the
French authorities’ obligation to execute a European Arrest Warrant issued by
the UK before that date. Most implementation of EU law is carried out by
national courts and administrations, not EU bodies, and the transitional rules
should take account of this.

16. The withdrawal agreement
should include appropriate dispute settlement mechanisms regarding the
application and interpretation of the withdrawal agreement, as well as duly
circumscribed institutional arrangements allowing for the adoption of measures
necessary to deal with situations not foreseen in the withdrawal agreement.
This should be done bearing in mind the Union's interest to effectively protect
its autonomy and its legal order, including the role of the Court of Justice of
the European Union.

The institutional arrangements will presumably entail an EU/UK Joint
Committee with the power to take decisions by joint agreement. There are
similar bodies in other EU treaties with non-EU states. The first and third
sentences, read together, do not explicitly insist that the ECJ have
jurisdiction over the withdrawal agreement (although it will inevitably have
jurisdiction as regards the EU side). The reference to ensuring EU
autonomy reflects ECJ case law which states that treaties with non-EU countries
cannot affect the separate development of EU law or the essential features of
the Court’s powers: see Opinion
1/91 and Opinion
1/00. Compare with point 17 of the EP resolution, which explicitly calls
for the ECJ to have jurisdiction over the withdrawal agreement.

IV. Preliminary and preparatory
discussions on a framework for the Union - United Kingdom future relationship

17. The European Council welcomes
and shares the United Kingdom's desire to establish a close partnership between
the Union and the United Kingdom after its departure. While a relationship
between the Union and a non Member State cannot offer the same benefits as
Union membership, strong and constructive ties will remain in both sides'
interest and should encompass more than just trade.

The EU accepts in general the UK position of having a close
partnership, including but going beyond trade. There is no explicit reference
to the form of the relationship, which is relevant given that it could affect
whether the EU side has to vote unanimously and ask national parliaments to
ratify any treaty. (EU treaties with non-EU states can be partly applied
provisionally pending such ratification).Point 22 of the EP draft resolution
hints at a possible association agreement: this entails unanimous voting and
usually also national ratification.

18. The British government has
indicated that it will not seek to remain in the single market, but would like
to pursue an ambitious free trade agreement with the European Union. Based on
the Union's interests, the European Council stands ready to initiate work
towards such an agreement, to be finalised and concluded once the United
Kingdom is no longer a Member State.

The EU accepts the UK position of seeking a far-reaching free trade
deal, rather than continued single market participation. Note that there is no
reference to continuing with the free movement of persons or contributions to
the EU budget – two key objectives of the UK side. The timing is an issue, as
noted already: no finalisation or conclusion until after Brexit Day, which
means that a transitional deal will be important in the meantime. Although in
theory this could be on or soon after Brexit Day, there is unlikely to be
enough time for that.

19. Any free trade agreement
should be balanced, ambitious and wide-ranging. It cannot, however, amount to
participation in the Single Market or parts thereof, as this would undermine
its integrity and proper functioning. It must ensure a level playing field in
terms of competition and state aid, and must encompass safeguards against
unfair competitive advantages through, inter alia, fiscal, social and
environmental dumping.

It is common for EU trade agreements to make some reference to state
aid and competition law, although only some of them require the non-EU state to
apply EU competition and state aid law as such. The guidelines leave it open as
to what exactly the EU side will aim for. In any event WTO rules also contain some
restrictions on granting subsidies and set out the possibility for trading
partners to retaliate if subsidies are granted, although these rules are less
far-reaching and enforceable than those applying to EU Member States. (Note
that the EU does not ban state aids entirely, but restricts them to certain
cases).

The ‘safeguards against unfair competitive advantages’ the EU side
wants refers to – among other things – ‘fiscal, social and environmental
dumping’. This does not explicitly refer to the adoption of EU law by the UK,
and in any event there is no EU law on minimum corporate tax rates. (Compare to
para 24 of the EP resolution, which refers more explicitly to EU laws, although
to ‘tax evasion and avoidance’ as distinct from tax rates). The UK might argue
that it would be sufficient to remain party to international treaties on
environmental law and social protection (in the ILO, the Council of Europe and
the UN Covenant on Economic, Social and Cultural Rights), and to hold regular
discussions on corporate tax rates – which could cut both ways. In any event,
many in the UK would welcome safeguards against cuts in environmental and
social standards, and would be concerned about how public services could be
funded in the event of large cuts in corporate tax.

It remains to be seen what exactly the EU side would accept as
safeguards, but the EU’s position should be seen in its overall context: as
noted already, the EU is not insisting on free movement of people or financial
contributions. It is striking that the EU side makes no explicit references to
services, where the UK has a trade surplus. If the UK wants to maintain that
strong surplus by having an advanced trade relationship that offers more free
trade in services than the EU usually agrees (but still falling short of single
market participation) this is the condition which the EU wants to set.

20. Beyond trade, the EU stands
ready to consider establishing a partnership in other areas, in particular the
fight against terrorism and international crime as well as security and
defence.

This matches the UK’s position. Neither side sets out any real details
here.

21. The future partnership must
include appropriate enforcement and dispute settlement mechanisms that do not
affect the Union's autonomy, in particular its decision-making procedures.

There is no specific mention of the ECJ here, and the autonomy issue
was discussed above. It’s not usual for the Court to have jurisdiction as
regards non-EU states, bar a few exceptions like the European
Aviation Area treaty, which facilitates aviation between EU and other
European countries. But it is common for the EU to agree dispute settlement
similar to the WTO dispute settlement system in agreements with non-EU
countries. Interestingly, the EU does not use such systems in its trade
agreements in practice, although it does often use the WTO.

In short, the WTO system provides for panels of experts to decide on
whether there is a breach of WTO law; their decisions can be appealed to an
Appellate Body. If a WTO party which was found to have breached WTO law does
not comply with these rulings, the victorious party which brought the complaint
can be authorised to retaliate against it with proportionate trade sanctions. Dispute
settlement bodies are not unique to the EU and WTO – there is an active system
in the NAFTA agreement between the US, Canada and Mexico, for instance. Such
systems fall short of the legal effect of EU law in national legal systems, but
still place some constraints upon the parties to trade treaties.

22. After the United Kingdom
leaves the Union, no agreement between the EU and the United Kingdom may apply
to the territory of Gibraltar without the agreement between the Kingdom of
Spain and the United Kingdom.

This clause has attracted much overreaction. It is not a claim to
Gibraltar territory or joint sovereignty, so there is no need to respond to it
with talk of military action. It merely acknowledges that the EU will not apply
post-Brexit treaties to the UK unless the UK and Spain have separately agreed
to this. It will be up to the UK and Spain to find agreement for each treaty,
or failing that to accept that the treaty in question will either not be
concluded or not apply to Gibraltar.

V. Principle of sincere
cooperation

23. Until it leaves the Union,
the United Kingdom remains a full Member of the European Union, subject to all
rights and obligations set out in the Treaties and under EU law, including the
principle of sincere cooperation.

This reflects the UK’s continued position that it will apply EU law
until Brexit Day. Point 5 of the EP draft resolution matches it.

24. The European Council
recognises the need, in the international context, to take into account the
specificities of the United Kingdom as a withdrawing Member State, provided it
remains loyal to the Union's interests while still a Member. Similarly the
Union expects the United Kingdom to recognise the need of the 27 Member States
to meet and discuss matters related to the situation after the withdrawal of
the United Kingdom.

The first sentence is ambiguous about a key issue: can the UK already
discuss trade deals with non-EU countries? It can’t conclude them without
violating EU law (para 23); normally it could not negotiate them either, but
does this sentence accept the argument that discussions on a post-Brexit deal would
be acceptable, as a consequence of the UK’s position as a withdrawing Member
State? The second sentence asserts the remaining EU’s right to meet without the
UK, presumably going beyond the talks relating to Brexit without the UK present
as referred to in Article 50. However, such meetings must remain informal, as
the next paragraph confirms.

Compare to point 6 of the draft EP resolution, which more explicitly argues
that the UK cannot negotiate with non-EU countries before Brexit, and argues
that the UK should be excluded from EU trade talks with non-EU countries if it
does. Such an exclusion would not be legal; the remedy in such cases of alleged
breach of EU law is for the Commission or another Member State to bring the UK
to the ECJ.

25. While the United Kingdom is
still a member, all ongoing EU business must continue to proceed as smoothly as
possible at 28. The European Council remains committed to drive forward with
ambition the priorities the Union has set itself. Negotiations with the United
Kingdom will be kept separate from ongoing Union business, and shall not
interfere with its progress.

The UK retains its formal position as a Member State until Brexit Day,
although obviously it will have declining influence as there will be little interest
in addressing its concerns and the other Member States merely have to wait out
any veto or participation in a blocking minority vote by the UK.

VI. Procedural arrangements for
negotiations under Article 50

The European Council endorses the
arrangements set out in the statement of 27 Heads of State or Government on 15
December 2016.

1. The first step following the
notification by the United Kingdom will be the adoption by the European Council
of guidelines that will define the framework for negotiations under Article 50
TEU and set out the overall positions and principles that the EU will pursue
throughout the negotiation. The European Council will remain permanently seized
of the matter, and will update these guidelines in the course of the
negotiations as necessary.

This refers to the guidelines of the European Council (the Member
States’ Heads of State and Government), the draft of which is now available and
was discussed above. Article 50 requires the guidelines to be adopted at the
start of the process.

2. After the adoption of the
guidelines, the European Council will invite the General Affairs Council to
proceed swiftly with the adoption of the decision authorising the opening of
the negotiations, following a recommendation by the European Commission, and to
deal with the subsequent steps in the process. The Council will also adopt
negotiating directives on substance as well as on the detailed arrangements
governing the relationship between the Council and its preparatory bodies on
the one hand and the Union negotiator on the other. These negotiating
directives may be amended and supplemented as necessary throughout the
negotiations, to reflect the European Council guidelines as they evolve.

This follows the normal process of EU treaty negotiation with non-EU
countries, as set out in Article
218 TFEU: a Commission recommendation to start talks, and a Council mandate
with detailed negotiation objectives, which may be amendment throughout the
talks. That mandate will likely be more detailed than these guidelines. The
General Affairs Council is made up of Member States’ foreign or Europe
ministers, and meets monthly. The Council’s ‘preparatory bodies’ consist of
working groups and Member States’ permanent representatives (the latter meets
weekly, and is known as ‘Coreper’).

3. The Council will be invited to
nominate the European Commission as the Union negotiator. The Commission's
nomination of Michel Barnier as chief negotiator is welcome. To ensure
transparency and build trust, the Union negotiator's team will be ready to
integrate a representative of the rotating Presidency of the Council.
Representatives of the President of the European Council will be present and
participate, in a supporting role, in all negotiation sessions, alongside the
European Commission representatives. The Union negotiator will systematically
report to the European Council, the Council and its preparatory bodies.

Article 50 leaves open who the negotiators will be, and some had
assumed it would be the Council. Nominating the Commission follows the usual
approach under Article 218 TFEU. However, including a representative of the
Council Presidency (which rotates every six months) and the European Council
President (Donald Tusk) in the talks is an innovation, which reflects their
importance. The obligation to report back to EU bodies reflects Article 218
TFEU.

4. Between the meetings of the
European Council, the Council and Coreper, assisted by a dedicated Working
Party with a permanent chair, will ensure that the negotiations are conducted
in line with the European Council guidelines and the Council negotiating
directives, and provide guidance to the Union negotiator.

Article 218 TFEU (and Article 207 TFEU, regarding trade) refer to
Council working parties supervising Commission negotiators, so this is nothing
new. As regards trade, the Commission refers to the committee which supervises
it as the ‘mothers-in-law’ (don’t shoot the messenger!).

5. The members of the European
Council, the Council and its preparatory bodies representing the United Kingdom
will not participate in the discussions or in the decisions concerning it.

This simply respects the wording of Article 50, extended (logically
enough) to the Council’s working parties, not just to the official meetings of
ministers or heads of state.

6. Representatives of the 27
Heads of State or Government (Sherpas/Permanent Representatives) will be
involved in the preparation of the European Council as necessary.
Representatives of the European Parliament will be invited at such preparatory
meetings.

This gives a slightly greater role than usual to the European
Parliament.

7. The Union negotiator will be
invited to keep the European Parliament closely and regularly informed
throughout the negotiation. The Presidency of the Council will be prepared to
inform and exchange views with the European Parliament before and after each
meeting of the General Affairs Council. The President of the European
Parliament will be invited to be heard at the beginning of meetings of the
European Council.

The first sentence reflects Article 218 TFEU, which calls for the EP to
be fully and immediately informed throughout negotiations. The second and third
sentences go into more detail, and give a bigger role to the EP than usual
during EU talks with non-EU countries. As noted already, however, the EP is not
a negotiator as such, although its power to give its consent to the final deal
(not referred to explicitly here) nevertheless means it is a significant actor.
The additional meetings referred to here will be a forum for the EP to
influence the negotiations.

There is no reference to the ECJ, which can rule on legal issues
concerning draft treaties with non-EU countries pursuant to Article 218 TFEU,
at the request of the Commission, Council, EP or a Member State. It is not
clear whether the whole of Article 218 necessarily applies to the Brexit treaty
process, since Article 50 only refers to some of it. There are also other ways
that Brexit legal questions can reach the ECJ: national courts can ask the
Court about them, the Commission can sue a Member State (or Member States can
sue each other), or Member States or the EU institutions can sue the [other] EU
institutions for various aspects of their conduct of the negotiation.